Federal cost cutting set to cost Canadian economy 14,000 new jobs by 2016: PBO

The federal government’s most recent “jobs and growth” budget will wind up costing Canada both jobs and economic growth over the next few years, the Parliamentary Budget Officer says in a new report.

The PBO’s latest estimates on the impact of the 2013 budget handed down in March show the cumulative impact will be to reduce economic growth by 0.12 per cent and job creation by 14,000 by 2016.

Combining the latest budget measures with the cutbacks unveiled in 2012 means there will be 62,000 fewer jobs in 2016, rising to 67,000 in 2017.

The PBO cautions the estimates do not mean the cutbacks will result in a loss of jobs, but that employment will be lower than it might have been without the measures. In economic speak, that means that government spending will act as a drag on economic growth, rather than a stimulus.

The report, released on the same day the government will table legislation to enact the budget, notes that revised spending levels in the latest economic blueprint will have a minimal impact on jobs this year and next but the longer-term effect is fewer jobs in 2015, 2016 and 2017.

The report also projects that the economy will grow at a slower rate than Finance Minister Jim Flaherty counts on in the March budget — by 1.5 this year and 1.9 per cent next year, compared with the budget estimate of 1.6 and 2.5 per cent respectively. These revised estimates still will not undermine Ottawa’s plans to balance the budget in 2015.

In fact, the PBO calculates that the government will report an even bigger surplus — $3.7 billion rather than $800 million — in the critical 2015-16 year when the Harper government is due to face the electorate in a fall vote. That’s because it believes Flaherty has built in a bigger than needed fund for downside economic risk, and because of rising employment insurance premiums.

“Based on PBO’s current economic outlook and measures and revisions… PBO projects a significant improvement in the government’s budgetary balance over the medium term,” the report states.

“PBO projects a budgetary deficit of $25 billion in 2012-13, which improves over the projection horizon, resulting in a budgetary surplus of $7.6 billion in 2017-18.”

The lower growth profile will result in unemployment remaining above seven per cent until 2016 and the Bank of Canada maintaining its current low interest rate setting until the spring of 2015.

NDP finance critic Peggy Nash said the paper confirms what her party has been saying all along about the budget, that by reducing spending, it will slice into growth.

“Interestingly, the PBO says these measures aren’t necessary to return the budget to structural surplus,” she said. “This government is doing nothing in this budget to help exports, they are doing nothing to stimulate private sector investment, they are hoping on a wing and a prayer that consumers pile on even more debt and that keeps the economy moving.”

In an email response, Flaherty’s office said the budget’s aim is to support a healthy economy during difficult global times, noting that Canada had created 900,000 new jobs since the 2008-09 recession.

“But we haven’t followed the path of certain countries — spending endlessly and creating a bloated government bureaucracy,” the statement states. “That would lead to the troubling consequences we’re seeing in many European countries, including growing government debt for generations to come.”

The report is the first major analysis of the economy and government finances under interim PBO head Sonia L’Heureux, who replaced Kevin Page last month.

The new breakdown will likely both be welcomed and ruffle some feathers inside the government, which has been critical of Page’s work for years.

While the estimate of job losses will grate, the PBO broadly agrees with Flaherty’s contention he will be in position to balance the budget in a few years. In fact, once the budget risk adjustment is removed, the report says the government will be in the black by about $2.5 billion.